17th July 2013
Japanese shares could soar if Shinzo Abe wins the forthcoming July 21st election as voters will be giving his radical policies to boost the economy a huge vote of confidence says Hargreaves Lansdown.
Currently opposition parties are able to block bills from the ruling Liberal Democratic party in the upper house and prevent important changes to legislation says Hargreaves Lansdown.
It says: “Victory in the upper house is essential to Shinzo Abe. It would end years of political deadlock and pave the way for him to implement critical reforms in his attempts to jump start the Japanese economy particularly the third arrow of reform.
Shinzo Abe’s policies, dubbed Abenonmics, consist of monetary policy, fiscal policy and economic growth strategies. Abe has already fired the first two of his arrows by, amongst other things, setting an inflation target of 2% per annum, implementing radical quantitative easing and increasing fiscal spending by 2% of GDP per annum. The third arrow, economic growth strategies, requires significant changes to legislation and for that he needs the support of the upper house.
Adrian Lowcock, Senior Investment Manager at Hargreaves Lansdown says: “Since Shinzo Abe became Prime Minister the Japanese stock market has been on a strong run. Investors have shrugged off doubts around Shinzo Abe’s policies and the Nikkei 225 has risen 31.2% in 2013.
A win in the upper house will be seen as an endorsement of Shinzo Abe’s approach and removes 6 years of political deadlock, allowing him to move forward on the next phase of his plan.
The last phase is the most important. Without structural reform businesses cannot become more efficient and profitable. At present Japanese labour laws are very restrictive, making it very difficult to fire or make an employee redundant. Instead, to cut costs employers have been cutting salaries creating wage deflation. Even after their impressive rise Japanese shares are still cheap and for long term investors the region remains attractive.”
The firm suggests the GLG Japan Core Alpha fund. It says the Manager, Stephen Harker, has been investing in Japanese equities for 29 years. Stephen is a value investor and has recently invested significantly in the banking and electronics sectors within the fund. Stephen believes that banks were already bottoming out in 2011, however, the earthquake delayed the recovery in bank stocks”.